Transneft Investors Petition Putin to Sell 25% of Common Stock

Aug. 26 (Bloomberg) -- OAO Transneft shareholders wrote to
Russian Prime Minister Vladimir Putin asking him to sell 25
percent of the oil pipeline monopoly’s common stock, according
to a letter e-mailed by investor Prosperity Capital.

Prosperity and East Capital, Russia’s two largest portfolio
fund managers, and Vostok Nafta, a commodity investment manager,
said the government may raise 150 billion rubles ($4.9 billion)
selling the stake, according to the letter dated Aug. 6. The
three hold 21 percent of Transneft’s preferred shares. The state
owns all the common stock, with voting rights.

“If we have more clarity about what the government plans
to do with Transneft privatization it could lead to a
transformation,” said Denis Evstratenko, associate director at
Prosperity Capital, which has $4 billion in assets under
management. “It could become a proper company with investor
meetings, regular phone calls with analysts, a dividend policy
and its price to earnings would then catch up on its peers.”

Transneft preferred shares now trade at a price to earnings
ratio of 1.4, compared with 4.7 for common stock of OAO Gazprom,
the gas export monopoly, according to Bloomberg data.

Limiting a sale to 3 percent of Transneft’s share capital
would damage the price and the stock’s liquidity, according to
the letter, signed by Prosperity Chief Investment Officer
Alexander Branis, East Capital partner Jacob Grapengiesser and
Vostok Nafta’s Per Brilioth. Such a sale would leave the state
with 75 percent of total equity, while the proposed sale would
cut its interest to 75 percent of voting rights.

Strategic Assets

The Finance Ministry said last month Russia may raise 883.5
billion rubles to help cover its budget deficit by selling
minority stakes in 10 companies, including Transneft and OAO
Rosneft, the country’s largest oil producer, in the next three
years.

Transneft is a strategic asset for Putin’s government,
shipping most of the country’s oil exports and building routes
to boost supplies to China and the Pacific or bypass transit
nations, such as Belarus.

At least three obstacles stand in the way of a state sale
of Transneft stock, Igor Dyomin, a spokesman for the pipeline
company, said by telephone today from Moscow. Putting a blocking
stake in the hands of an oil producer may create an uneven
playing field for pipeline access, he said.

A decrease in state ownership could trigger a rating
downgrade, raising the cost of borrowing, Dyomin said. An
ownership change may also breach bond covenants and trigger
repayment, he said.

Dyomin declined to comment directly on the letter, saying
he hadn’t yet seen it. Evstratenko said Putin’s office had yet
to reply to the letter.